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How to Show the Benefits of Risk Management

Sometimes we struggle to illustrate the value of risk management. We sense we are doing the right things. How can we show the benefits?

Some products such as weight loss programs are promoted by showing a “before picture” and an “after picture.” We are sold by the extraordinary improvements.

The “before picture” and “after picture” are also a powerful way to make known the value of risk management.

We have risks in which no strategies or actions have been executed. In other words, we have a “before picture” of the risks. When we execute appropriate response strategies such as mitigating a threat, the risk exposure is reduced. Now we have the “after picture.”

Let’s look at one way to create pictures of our risk exposure for projects, programs, portfolios, and enterprises.

Say Cheese

The first step to turning risk assessments into pictures is to assign risk levels.

Assume that a Project Manager is using a qualitative rating scale of 1 to 10, 10 being the highest, to rate Probability and Impact. The Risk Score is calculated by multiplying Probability x Impact. Here is an example of a risk table with a level of risk and the corresponding risk score range.

Level of Risk

Risk Score

Very Low

< 20

Low

21 – 39

Medium

40 – 59

High

60 – 79

Very High

> 80

Figure 1: Qualitative Risk Table

Looking Good

Imagine a Project Manager facilitates the initial risk identification and assessment. The initial assessment results in fifteen Urgent Risks – eight “High” risks and seven “Very High” risks.

Figure 2: Number of Risk before Execution of Risk Response Strategies

We decide to act on the Urgent Risks alone and leave the remaining risks in our Watch List. The team develops risk response strategies for the Urgent Risks such as ways to avoid and mitigate threats.

Figure 3: Number of Risks after Execution of Risk Response Strategies

After the project team executes the strategies, the team reassesses the risks. We see a drop in the number of Urgent Risks (lighter bars). The team has reduced the risk exposure and improved the potential for success.

How to Illustrate Programs, Portfolios, or Enterprises

Now, imagine a Program Manager managing four projects in a program. We can roll up the risks of the four projects into a single view. Figure 4 below illustrates the comparison of the number of risks before and after the execution of the risk strategies.

Figure 4: Number of Program risks before and after the execution of risk response strategies

Of course, we can also illustrate risks in a like manner at a portfolio level or an enterprise level (i.e., Enterprise Risk Management).

Tip of the Day

When you ask team members to rate risks, it is important we specify whether the team members are assessing the “before picture” (i.e., inherent risks) or the “after picture” (i.e., residual risks) or bothInherent risks are risks to the project in the absence of any strategies/actions that might alter the risk. Residual risks are risks remaining after strategies/actions have been taken.

Question: What types of charts or graphics do you use to illustrate the value of risk management?

7 Ways to Further Reduce Project Uncertainty

Stay on course

Photo courtesy of iStockphotos.com

How can we reduce project uncertainty?

Previously, we have covered risk management topics directly for the Planning Process and the Monitoring and Control Process:

What about the other Process Groups? Let’s consider 7 other places to integrate risk management in the pursuit of achieving project objectives.

Initiation Process Group

1. Complete the Stakeholder Analysis. Identify individuals and groups impacted by the project. What are their interest and concerns? Which stakeholders have the greatest influence and interest? Understanding your stakeholders is foundational to managing risks.

2. Develop Project Charter.  Clearly defined goals are foundational to risk management. Fuzzy goals fuel fuzzy risk management. Work with your Project Sponsor, project team, and stakeholders to clarify goals. Identify threats and opportunities for each goal. Capture the highest risks in the Project Charter.

Planning Process Group

3. Collect Requirements. The Standish Group says the three biggest factors that lead to failed or challenged projects are:

  • Lack of user input
  • Incomplete requirements and specifications
  • Changing requirements and specifications

Invest in the elicitation, analysis, documentation, and validation of requirements and reap the benefits. Get appropriate stakeholders involved. Clarify and manage your requirements.

4. Complete a Work Breakdown Structure. Work with your project team to decompose the project into the work required for the project. The WBS allows your team and stakeholders to see all the work required. Use the WBS to drive risk discussions for the chunks of work.

5. Develop Project Schedule. As you develop the project schedule, determine risks for your detailed tasks, particularly for tasks on the critical path (i.e. the longest path through your schedule). Where appropriate, add schedule contingency reserves (i.e. additional hours) to address the uncertainties.

6. Develop Project Budget. As you develop the project budget, determine the budget contingency reserves for known risks and the management reserves for unknown risks.

Monitoring & Controlling Process Group | Closing Process Group

7. Conduct Lessons Learned. Lessons learned evaluations are typically performed in the Closing Process. Try conducting them throughout the project, particularly for large, complex projects. Learn as you go.

If your organization has a lessons learned repository, access the lessons for insights from other projects. Discover, discuss, and document lessons learned for your projects.

In the early part of your next project, define your Risk Management Plan. Use this blog post as a checklist for risk management activities. Apply what is fitting to your project.

Question: What other risk-related processes would you suggest PMs consider?

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